Google’s Cheap Smoothies Fuel Phone-Pay Push: Rich Jaroslovsky

By Rich Jaroslovsky -
Nov 2, 2011

Does a pair of bright gold socks
represent the future of electronic commerce?

It just might. The socks in question were purchased at a
Macy’s in Silicon Valley, using a wireless phone and a Google
Inc. (GOOG) app instead of a conventional credit card. It’s part of the
first wave of mobile payments, a topic you’ll be seeing and
hearing a lot more of in the months to come.

Companies like Visa Inc. (V), MasterCard Inc. (MA), eBay Inc.’s
PayPal unit and the wireless carriers are pouring resources into
ways to get us to use our smartphones to replace cash and credit
cards. While the Google Wallet app is limited in scope, it’s one
of the first out of the chute, having launched six weeks ago.

At the moment, the Google system involves a single model of
phone and a limited number of merchants in the New York and San
Francisco areas. The phone is the Nexus S 4G, which is made by
Samsung Electronics Co., uses Google’s Android operating system
and runs on Sprint Nextel Corp. (S)’s fastest network, called WiMax.
It includes a chip and internal antenna enabling what’s called
Near-Field Communication, or NFC, which allows the wireless
sharing of data over very short distances.

The obvious, and biggest, question is why anyone would want
to use a phone to buy socks. True, I carry enough plastic in my
hip pocket to throw my spine permanently out of alignment. But
pulling out a credit card to pay for something isn’t so
complicated or inconvenient that I’ve ever longed to replace it.

Smoothie Operator

But what if I could get a discount on those socks -- or a
special deal on a smoothie at the Jamba Juice shop -- without
having to clip or print out a coupon? What if I could
automatically get loyalty points from OfficeMax or Foot Locker?
From the consumer’s standpoint, those may be the most important
services Google Wallet provides; the actual payment is almost
incidental.

The home screen of the free Wallet app consists of four
icons labeled “Payment cards,” “Loyalty cards,” “Offers”
and “Transactions.” Under payment cards, you’ll find three
options. If you have a MasterCard issued by Citigroup Inc. (C)’s
Citibank unit, you can directly enter your credit-card
credentials, making the phone essentially a duplicate of your
plastic.

Using a different credit card, for now, entails a two-step
process requiring you to add money to a Google-branded prepaid
debit card that appears on screen. Perhaps to soften the
inconvenience, Google starts you out with a $10 balance on the
prepaid card. (Yes, the company is paying you to use its app.)
You can also enter information on gift cards from a limited
number of retailers, including Macy’s and Bloomingdale’s, which
are both owned by Macy’s Inc. (M)

Cashing In

To test out the process, I headed to the upscale Stanford
Shopping Center in Palo Alto, California, and opened the app to
see what deals it had for me. One immediately caught my eye: a
16-ounce all-fruit or fruit-and-veggie smoothie at Jamba Juice,
which normally costs $4.25, for only $2. I pressed the “Save”
button on the screen, which qualified my phone for the offer,
and headed over to cash in.

At Jamba Juice, I ordered my Strawberry Whirl and pulled
out the Nexus S. Among the several security safeguards Google
has built in, the system won’t work until you wake the screen;
you also have to enter a four-digit personal identification
number. And your credit card information is stored in the phone
in a form that, Google says, other apps aren’t able to access.

Swipe-and-Go

When I passed the back of my phone across the same
MasterCard PayPass reader used for swipe-and-go credit cards, my
discount was automatically applied, the $2 was deducted from the
balance and a digital receipt was created under the app’s
Transactions tab.

Then I moved on to Macy’s, which offered me an extra 10
percent to 15 percent off sale and clearance merchandise. Things
didn’t go quite so smoothly this time, though, largely because
neither the salesman nor I knew the technology well enough. When
I tapped the phone on the reader, it deducted the discount on my
socks but didn’t close the transaction. It took a few minutes of
fumbling before the two of us realized I had to tap it again to
actually make the payment.

Although the Nexus S has built-in GPS, like just about all
smartphones, the receipts from Jamba Juice and Macy’s included
just the name of the store, not its location. I fared better
when I used my Google Wallet at a Peet’s Coffee & Tea shop in
Santa Rosa, an hour north of the Golden Gate Bridge. Not only
did the electronic receipt give the address of the store, it
even plotted the location on a map.

No Deal

Alas, no discount here: All I got besides my drink was the
information that I was the store’s first-ever phone payer.

Keep an eye out for other smartphone-based payment systems
in the works. Isis, a joint venture including wireless carriers
AT&T Inc. (T), Verizon Wireless and Deutsche Telekom AG (DTE)’s T-Mobile
USA, has announced partnerships with a number of major handset
makers and plans to start trials next year. Notably missing from
its roster of manufacturers is Apple Inc. (AAPL), which might be
positioned to do something on its own thanks to the millions of
credit card numbers it already has on file through its iTunes
Store.

Then there are smaller players. Square, the mobile-payments
startup run by Twitter co-founder Jack Dorsey, has an app called
Card Case that lets you pay by speaking your name at checkout.
And Jonathan Kaplan, the entrepreneur behind the Flip video
camera, is opening a chain of mobile-payment-enabled grilled-
cheese-and-soup restaurants called The Melt. I like the food --
even if there aren’t any $2 smoothies.

(Rich Jaroslovsky is a Bloomberg News columnist. The
opinions expressed are his own.)